Suffolk County Executive Steve Levy delivers his 2011 State of the County Address at the West Sayville Fire Department on Feb. 15, 2011. Photo Credit: Jessica Rotkiewicz

Suffolk County Executive Steve Levy, one of the most popular politicians on Long Island, stunned the political world Thursday by announcing he will not seek re-election in November after prosecutors raised questions about his campaign financing.

The county executive, 51, who has been in elected office nearly all his adult life, must turn over his entire $4-million campaign war chest to the district attorney's office. Last year Levy sought the Republican nomination for governor.

Thursday's announcement followed an investigation by Suffolk District Attorney Thomas Spota's Government Corruption Bureau. In a statement, Spota said his investigation revealed "serious issues with regard to fundraising and the manner in which it was conducted."

Over the past year, Newsday investigations have raised questions about Levy's campaign contributions, his financial disclosures and his wife's work for county vendors.

Levy's announcement set off a scramble for who will be his party's nominee for county executive this fall. Until recently, Levy's associates have said, he had talked about making another run for governor in three years.

In midafternoon Thursday, Levy informed top Republican officials in the county, and later his Hauppauge staff. Afterward, he issued a statement announcing his decision.

"Questions have been raised concerning fundraising through my political campaign," Levy said. "Since this occurred under my watch, I accept responsibility. . . . In order to resolve these questions, I will be turning over my campaign funds to the Suffolk County district attorney."

In his own statement, Spota said, "There is no question that while the investigation revealed serious issues with regard to fundraising . . . I am confident that Mr. Levy did not personally profit. The forfeiture of his $4-million campaign fund demonstrates his acceptance of responsibility for these failings."

Spota added, "You can be assured that if I believed that his actions compromised his ability to govern, I would have sought his resignation."

He said his investigation "into Mr. Levy's conduct" has now ended. But he said an unspecified separate investigation "will continue with respect to the conduct of others." As for the $4 million, Spota said it would be distributed to those who wanted it back, but only after the November election. Anything not claimed will be donated to charity.

"I am satisfied that the actions taken by Mr. Levy resolve the investigation in the best interests of the citizens of Suffolk County," Spota said.

Levy's announcement -- and the disclosure that he had been the subject of a DA's investigation -- was an astonishing turn of events for a man who was once so popular that the last time he ran for office both parties endorsed him. His political fortunes began to change in March 2010, when Levy shocked even his own party leader by declaring his plans to leave the Democratic Party and run for governor as a Republican. Much of his war chest was raised when he was a Democrat.

His decision not to run for re-election immediately changed the political landscape in Suffolk.

"I'm stunned and speechless. . . . This just drastically changes the entire political year," said Richard Schaffer, the Suffolk Democratic chairman. "This is probably one of the most significant political things to happen in the county in a very long time."

Levy's short-lived bid for governor last year energized what had previously been seen as a lackluster race. Casting himself as a reformer, Levy vowed to "clean the place up both ethically and financially."

Questions about how he raised his money surfaced in April, when Newsday reported that Levy -- a longtime advocate of campaign finance reform -- had received $200,000 in contributions from law firms and title companies doing business with the county.

Newsday also reported that a company partly owned by Levy's longtime friend, Ethan Ellner, got more than $85,000 in county title work -- on Levy's recommendation -- even though Levy knew Ellner had been convicted of federal tax evasion, lost his law license for a year and was cited for "unconscionable trade practices" by Suffolk County consumer affairs officials.

Levy defended his decision as an effort to give a friend a second chance; but his relationship with Ellner would dog him, coming up later in a high-profile criminal case against a former county legislator in which Ellner testified.

By June, Levy's gubernatorial campaign had fizzled, after he failed to win enough votes to secure the Republican nomination.

That month, Spota's office subpoenaed Levy's financial disclosure forms after Newsday inquiries about why Levy filed a state disclosure form, rather than the more detailed county form that roughly 650 county employees are required to fill out. Levy defended his filing, saying he had a ruling from the SuffolkEthics Commission director that the state form would suffice.

County legislators reacted swiftly. Presiding Officer William Lindsay (D-Holbrook) formed a special legislative committee to investigate the Ethics Commission, which is ongoing. Levy called the probe politically motivated.

In July, Newsday reported that court reporting firms owned by Levy's wife, Colleen West, regularly received work from businesses with millions of dollars in county contracts. Those business relationships were never disclosed on county financial disclosure forms, which Levy filled out after the Newsday stories. Levy said it was not required.

In early January, court documents released in the insurance fraud trial of former county Legis. George Guldi indicated that a key witness said that a "high elected official" received cash payments for public work awarded to a Suffolk County title company.

The company was Suburban Abstract, which was partly owned by the witness, Ellner.

While the official's name was never disclosed, Levy issued a statement that said, in part, "I request donations from thousands of residents and businesses on a yearly basis, but I have never, ever demanded one."

Two weeks later, prosecutors in the Guldi case, as required by law, turned over to the defense a witness statement that provided more detail about the cash payments. According to the court papers, the witness said that he was asked for a "bribe" by the elected official and that it would be paid via Lee Holding Corp.

State campaign records showed that a Lee Holding Corp. contributed $8,900 to Friends of Steve Levy from May 21, 2006, through June 25, 2007. It did not contribute to any other candidates and is the only company of that name in state campaign filings from 2005 through 2009. State business records list Ellner's mother, Gladys, as the chairwoman or chief executive of Lee Holding Corp.

When Ellner testified in the case, he said the elected official told him how much to pay in contributions and that he got the county title work as a result of his relationship with the county official.

At that time, Levy spokesman Dan Aug said Ellner "simply lied without substantiation."

Levy has enjoyed immense popularity among voters, who applaud his tightfisted governance and willingness to face down the powerful police union. A skilled politician, Levy is renowned for his work ethic, often scheduling stops at three or four community meetings on a single night. Proud of his middle-class roots, he has an instinctive feel for the public mood.

He has touted his fiscal record, noting last year that Suffolk had faced a $238-million deficit when he first took office, and that he had managed to improve the county's finances without any significant tax increases since then.

Levy's announcement

What happened

Suffolk County Executive Steve Levy announces that he will not seek re-election in November. He will turn over his $4 million campaign fund to the district attorney's office.

The money

District Attorney Thomas Spota says the money will be given back to those who want it back. Anything left over will be donated to charity.

The impact

The decision changes the county executive campaign because the Republican Party had planned on Levy being at the top of its ticket. Babylon Supervisor Steve Bellone is the Democratic frontrunner. Any potential Republican candidates now must scramble to raise the funds necessary to conduct such a campaign.

The investigation

Spota's office had been looking into fundraising conducted by Levy's campaign. That investigation into Levy has now ended, Spota said. He said the investigation will continue "with respect to the conduct of others."